Potentialconflictsofinterestaremorecomplex。

ThosehighlightedincludeETFrangesbeingusedbybankstoraisecheapfinancingfortheirtradingactivities;ETFsunderlyingstocksbeinglentouttobenefitthefundcompany;andpotentialworriesoverobjectivitywhentheETFprovideralsocalculatestheindex。

Itshardforaninvestortodomuchaboutthefirsttwo,butonthelast,wedsuggestyouinsistonanindependentindexproviderandcheckthatseveralindependentmarketmakersaretheretosupportanETFsliquidity。

Finally,whatofsystemicrisk?

Regulatorsworryaboutwhattheycalltheshadowbankingsystem,whichcouldincludenewerfinancialproductssuchasETFs。

TheyrealsoconcernedthatinvestorsmayseeETFsasmoreliquidthantheyreallyare。

Onthispoint,rememberthemarketsaccessedbyETFsvarywidelyintheirunderlyingliquidity。

Somearehighlyliquid–majorstockindices,gold,gilts,USTreasuries–othersarenot。

Beawareofthiswhenselectingandtradingfunds,andyoushouldntgofarwrong。

Inshort,therearepotentialpitfallswithETFs,aswithanyotherinvestmentproduct–butbymakingsureyouknowwhatyourebuying,youcanavoidthem。



PaulAmeryedits

www。

indexuniverse。